Volkswagen is considering closing factories in Germany for the first time in its 87-year history as it seeks to intensify cost-cutting efforts in response to increasing competition from Chinese electric vehicle manufacturers.
In a statement on Monday, the German automaker, one of the largest car companies globally, indicated that it could not rule out the possibility of shutting down plants in its home country. Additionally, the company is exploring other measures to “future-proof” itself, including potentially ending an employment protection agreement with labor unions that has been in place since 1994.
According to the Volkswagen Group CEO Oliver Blume:
“The European automotive industry is in a very demanding and serious situation. The economic environment has become even tougher, and new competitors are entering the European market. Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”
Volkswagen, which launched a €10 billion ($11.1 billion) cost-cutting initiative late last year, is experiencing a decline in market share in China, its largest market. In the first half of this year, deliveries to Chinese customers fell by 7% compared to the same period in 2023. The group’s operating profit dropped by 11.4% to €10.1 billion ($11.2 billion).
Krisztian Bocsi/Bloomberg/Getty Images
This underwhelming performance in China coincides with the company losing ground to local electric vehicle brands, particularly BYD, which also presents a growing challenge to its business in Europe. Blume also mentioned during an earnings call with analysts last month, referencing planned cuts to factory, supply chain, and labor costs. He added:
“Our main area of action is cost cutting, We have done all the organizational steps needed. And now it is about costs, costs and costs.”
Volkswagen’s cost-cutting plans will face heavy resistance from labor representatives, who hold almost half the seats on the company’s supervisory board, the body that appoints executive managers. IG Metall, one of Germany’s most powerful unions, on Monday blamed mismanagement for the firm’s shortcomings and vowed to fight to protect jobs. “Today, the board presented an irresponsible plan that shakes the very foundations of Volkswagen, massively threatening jobs and locations,” IG Metall lead negotiator Thorsten Groeger said in a statement.
“This approach is not only short-sighted but also highly dangerous — it risks destroying the heart of Volkswagen… We will not tolerate plans that the company makes at the expense of the workforce.”
Volkswagen employs almost 683,000 workers worldwide, including some 295,000 in Germany, according to its most recent earnings report.
Thomas Schaefer, the CEO of Volkswagen passenger cars, said the company remains committed to Germany “as a business location.” He added that VW would initiate talks with employee representatives urgently to explore possibilities for “sustainably restructuring the brand.”
“The situation is extremely tense and cannot be resolved through simple cost-cutting measures,” Volkswagen said.
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